| Tesla: Silence is golden! Jan-20 |
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The Story
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| With the wind behind its back, Tesla has consolidated its hold on the electric car market and will continue to grow that market, at the expense of conventional car makers. Pushing its production towards 2 million cars by 2030, it will also be able to deliver higher margins than conventional auto companies in steady state. The rise in its market capitalization has reduced its cost of capital and the chance of failure. While Tesla will be able to invest less than other auto companies to add to capacity, its need to ramp up production will require more capital, creating negative cash flows in the near years. While other revenue sources (green energy, driverless cars in ride sharing) will supplement revenues, it will remain at its core an electric car company. |
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The Assumptions
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| Base year | Years 1-5 | Years 6-10 | After year 10 | Link to story | |
| Revenues | $24,578 | 40.00% | 32.35%➡1.75% | 1.75% | Growth in EV market & Tesla's early mover advantage work in its favor. |
| Operating margin | 1.60% | 4.88%➡18.00% | 18.00% | 18.00% | Continued economies of scale & brand |
| Tax rate | 25.00% | 25.00% | 25.00% | 25.00% | Global tax rate |
| Reinvestment | Sales-to-capital = 2.0 | RIR = 17.50% | Capacity build up allows for less reinvestment in the near years. | ||
| Return on Capital | 1.59% | Marginal ROIC = 22.69% | 10.00% | Cost of entry will limit competition. | |
| Cost of Capital | 6.94% | 7.03%➡7.40% | 7.40% | Moves to median company cost of capital. | |
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The Cash Flows
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| Revenues | Operating Margin | EBIT | EBIT (1-t) | Reinvestment | FCFF | |
| Base year (2019) | $24,578 | 1.60% | $394 | $296 | ||
| 1 (2020) | $34,409 | 4.88% | $1,681 | $1,260 | $4,916 | ($3,655) |
| 2 (2021) | $48,173 | 8.16% | $3,932 | $2,949 | $6,882 | ($3,933) |
| 3 (2022) | $67,442 | 11.44% | $7,717 | $5,788 | $9,635 | ($3,847) |
| 4 (2023) | $94,419 | 14.72% | $13,899 | $10,425 | $13,488 | ($3,064) |
| 5 (2024) | $132,186 | 18.00% | $23,794 | $17,845 | $18,884 | ($1,039) |
| 6 (2025) | $174,949 | 18.00% | $31,491 | $23,618 | $32,072 | ($8,454) |
| 7 (2026) | $218,161 | 18.00% | $39,269 | $29,452 | $32,409 | ($2,958) |
| 8 (2027) | $255,357 | 18.00% | $45,964 | $34,473 | $27,897 | $6,576 |
| 9 (2028) | $279,361 | 18.00% | $50,285 | $37,714 | $18,003 | $19,711 |
| 10 (2029) | $284,250 | 18.00% | $51,165 | $38,374 | $3,667 | $34,707 |
| Terminal year | $289,224 | 18.00% | $52,060 | $39,045 | $6,833 | $32,212 |
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The Value
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| Terminal value | $570,130 | |
| PV (Terminal Value) | $287,724 | |
| PV (CF over next 10 years) | $11,445 | |
| Value of Operating Assets | $299,169 | |
| Adjustment for distress | $149,585 | Probability of failure: 10.00% |
| - Debt & Minority Interests | $14,708 | Based on Ba1 rating from Moody's |
| + Cash & Other Non-operating assets | $6,514 | |
| Value of equity | $276,017 | |
| - Value of equity options | $9,012 | |
| Number of shares | 177.0 | |
| Value per share | $1,277.54 | Stock was trading at $581.0 |
In millions USD except per-share items.